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Cost polarisation and the divergent retail sector

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It is estimated that by 2015, the middle class would have disappeared. Most consumer markets are In the midst of what is becoming a vastly polarised landscape that is largely shaping the way we shop. These divisions of sharp factions are becoming increasingly noticeable between the luxury retailers and the discounted end of the sector.

As a retailer in today’s market the changing face of the high street could be related to this.

Today, retailers are being forced into this more challenging retail environment. Social, demographic and technological trends have spawned numerous reports, about the rising appeal of discounters and the increasingly squeezed middle market.

Large numbers of consumers have been deserting high streets, and choosing the appeal of, mulit-choice, multi-class out of town shopping centres.

As well as the boom in online spending, the rise of shopping malls popping up all over the country have made a way for a pretty sizeable rift to form between shops that cater for the most affluent higher earning and those that cater for everyone else.

Robert Noel, chief executive of the largest commercial property company on the UK, and Land Securities said: “The polarisation of retail between large destination malls and secondary high streets is increasing. The UK market is difficult. Retail is not dead. It is changing. It is polarising. There are towns in this country that may never see retail occupiers coming back into their high street again. ”

The performance of shopping areas depends on the spending profile of the customer base, and that is tied to the economic conditions of the areas in which the shopping activity is operating.

“The “barbell” effect is at work at retail mall level,” says Suzanne Mulvee, director of retail research for the US CoStar Group.

“It’s either the discounters on one end doing well or luxury on the other end that are doing well, with everyone in the middle getting squeezed.”

Emerging consumer trends are highlighting a divided consumer landscape that is in two halves, the haves and have-nots, and retailers are having to adjust.

These developments are leading to the shrinking of the middle market and when the middle class is squeezed, so are the mid price retailers - this polarisation will continue to drive success at both ends of the economic sector with luxury retailers catering to one end of the spectrum and mass market retailers dedicated to the extreme value end of the market.

But should we assume that these trends are likely to persist?

Consistently well performing discounters, do little to stop the polarisation. The hype surrounding German discounters Aldi and Lidl arrived in the UK in the nineties, and in their time, the market has witnessed a battle of high and lows where casualties have been from across the board in grocery marketing. But this year, it was revealed that they are ever more popular-

According to YouGov’s BrandIndex, in terms of consumer perception, Aldi takes the number one spot for having the most positive brand noise in the UK over the last six months.

Edward Garner, director at Kantar Worldpanel said: “Aldi saw a 32% sales growth rate for the 12 weeks to 20 July; this is a new record for the retailer and means it has nearly caught up with Waitrose.

The Kantar research found Waitrose saw sales grow by 3.4%, a growth rate -well above the market average.

By contrast, the rest of the retail sector are watching the growing online and new generation mobile shopping figures, a sector not easily distinguished by class.

The Economist has predicted that by 2020, retail shops “may no longer be a place where transactions are made.” but transformed into “a channel for consumers to see, touch and try out goods,” while they make purchases online, or via a smart phone app.

People are shopping in a different way, and it is all just an exemplification of how consumer tastes evolve.

Published on Friday 21 November by Editorial Assistant

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